Nowadays investment has become an essential resource for everyone to get a good return for their money. And every investor is looking for a good broker, who will help him to get good returns in the right way. And no doubt, with 31 million users, Robinhood is on the top. It provides revolutionized stock trading by offering brokerage-free trading.
Even if you are a beginner, Robinhood allows you to purchase small partial shares and you can bundle everything into an attractive mobile app.
But whenever you go for the registration on Robinhood, you cannot complete the process unless you provide Robinhood with a Social Security number. And many people think that why we are being asked for, thousands of questions start arising in the mind of the investor.
Investors are often surprised by the number of requests brokerage firms ask about personal information. Yes, brokers must obtain the information from investors as they are doing investments on behalf of their clients.
Besides, there are some prescriptions from the Securities and Exchange Commission (SEC) that brokers have to follow before investing.
So in this blog, we will explain why Robinhood needs your Social Security number and how your personal information is being protected by the brokers.
Let's Dive in.
So, whenever you heard about Robinhood's free trading, you jumped and decided to open an account with Robinhood and enjoy the commission-free trading. And when you start the account opening process and in between you have been asked about your Social Security Number, you stop for a while and start thinking why they are asking for my SSN, it is quite personal, why do they need it? Should I go for it or leave the registration process in between.
Let me give you the direct answer, If you want to open an account through the government to trade with US brokers you have to provide your complete information. Whether it is your SSN or your other information regarding your account, you have to submit it.
Collection information from traders is a practice conducted by the elf regulatory bodies in financial services such as the Financial Industry Regulatory Association (FINRA).
There are some reasons behind this collection of information. Let's know the reasons.
Both the SEC and US jointly started a program that enforces the Customer to follow the Identification rule. As per this rule, financial institutions have to collect your SSN whenever you want to open an account with them. If you fail to provide your SSN, they will not allow you to open your account.
This rule bounds the brokers to follow the procedure of identification, they have to verify the identity of any person who is going to open a new account to determine the background of that person if he appears on the government list of known or suspected terrorists.
This rule was enacted to fight back the money laundering issues, which considers the primary sources of funding for terrorist organizations.
Always remember that legally you don't need to provide your SSN to just keep your record, it is legally required under the Customer Identity Rule. So, this is the reason why brokers do not allow you to skip this requirement
Whenever you open an account, you need to submit your name, address, date of birth, government ID, net worth, and SSN. This is because the Securities and Exchange Commission (SEC) always requires complete information about traders from brokers. So they made brokers collect your personal information.
But if you don't want to provide your SSN nobody will force you because technically it is not required by the law to collect your SSN. And if you don't provide it, it is next to impossible for you to open an account. Due to the automation process in the software, you cannot complete the account setup process without providing your SSN.
If you directly ask Robinhood to discuss this matter, you need to work very hard. The customer support framework never allows you to open your account without providing SSN.
Together with legal requirements, your personal information is also needed to reach your financial goals. That's why industrial organizations like FINRA always advise brokers to collect the personal information of investors so that brokers would be in a better position to help the investors to invest with caution.
The personal information includes the salary, net worth, and career history, so that in case any investment that does not fit in an investor's situation (high-risk investment) the brokers stopped them from investing. If investors' status allows them to invest then they can invest and in that case, brokers never ask them to stop investment.
Brokers check the risk tolerance, financial goals, the amount of debt the investor has, the number of years for retirement, and the net worth. A good broker will always advise in special circumstances.
There is a list of additional information produced by FINRA that a broker may ask for while opening an account. For the betterment of business, investors are advised to keep brokers updated about these details.
Contact Person: Brokers may ask for the name, address, and contact details of the trusted contact person. This information is only needed in case of financial fraud.
Account type: Brokers ask the investors about the account type they want to open i.e. cash account or margin account. In a cash account, investors need to pay in cash deposits for their trades, and a margin account is required for trading derivatives.
Uninvested cash: Here investors may ask about their dealings with cash in their account. It includes the money deposit at regular intervals either with dividends or with interest on investments.
That's it..!!
Hope you like the information we have shared about "why does Robinhood need your SSN". If you still have any doubt regarding the same you can comment below, we will right back to you as soon as possible.
